With crude sinking below the $37/bbl mark in overnight trade, the loonie felt the full wrath of the market with USD/CAD hitting 11 year highs in European dealing. The pair traded as high as 1.3669 and could target the 1.3700 figure – a level it hasn’t seen in more than a decade – late in North American trade.

The decline in crude has been relentless as the post OPEC meeting reaction has seen nothing but liquidation of longs for the past two days. With Saudi’s refusing to curb production and Iraq and Iran increasing theirs, it appears that world is awash in oil and that’s taking its toll on the loonie.

Some analysts have suggested that there may be a glimmer of hope as demand finally outstripped supply in the oil market in November and the $35/bbl level in crude is sure to exercise some psychological support for the commodity, but for now the selling has been a one way move that continues to weaken the loonie. Nevertheless, USD/CAD is now approaching very long term resistance in the 1.3500-1.4000 corridor and its likely to find some sellers soon especially if crude finds a temporary bid at the $35/bbl level.

The drag from the loonie spilled over to Aussie which unwound all of its post employment gains dropping to .7225 in European trade. The Aussie remains capped in the .7350 region but at the same time has strong support below .7100 and could stage another upside rally on any short covering squeeze in commodities as RBA remains resolutely neutral in the face of relatively robust economic data Down Under.

The push and pull of other markets may ease on FX as we enter North American trade and traders get a look at the most important consumer data of the week. Today;s US Retail Sales and U of Michigan data could seal the Fed decision next week if they prove supportive. As our colleague Kathy Lien noted yesterday, “ We think tomorrow’s U.S. retail sales report will surprise to the upside because wages are on the rise, payroll growth last month was strong and gas prices are low. While this would help the dollar, it won’t save the rally. Consumer spending is the backbone of the U.S. economy and for most of this year spending levels have been low. One good report would not be enough to change the Fed’s mind about the pace of tightening. A weak report on the other hand would be disastrous in that it would encourage more investors to bail out of the dollar pre-FOMC. The only person that could save the dollar is Janet Yellen and we won’t hear from her until next week.”